Employee and Contractor Issues High Court Clarifies
This is essential reading. It is an issue that has been thwart with Legal uncertainty for years. This is particularly so with the new world of the gig economy. Read on, it may be very relevant to your situation. Employee and contractor issues have considerable financial and legal ramifications. Is it a unfair dismissal or is it a termination of an agreement?
Independent contractors have different rights and obligations to employees
Employee and Contractor Issues, is a particularly controversial topic at present. So what’s it all mean? Lets bring some clarity to the issue now. If your dismissed as an employee, you have far cheaper and quicker access to recourse in the Fair work Commission. Than going to court in reality was is now a small business owner characterized as a contractor.
Independent contractors have different rights and obligations to employees. This is because they provide services to another person or business, as opposed to being employed by that person or business. This means it’s important to understand the difference between the two.
As a rule, for an employment relationship to exist, a minimum level of mutual obligation is required. In other words, there is an obligation for one person to perform work (the employee) and for the other person to pay for that work (the employer). Courts look at the whole relationship between the parties when determining if a person is an employee or an independent contractor. This was through a multi-factor approach, looking at the totality of the relationship.
Just because you have an ABN doesn’t automatically make you an independent contractor.
You need to consider all these indicators when working out whether you’re an employee or an independent contractor. There usually won’t be one deciding indicator. For example, just because you have an ABN or issue invoices doesn’t automatically make you an independent contractor.
A person won’t automatically be an employee or an independent contractor because of the type of work they do. A person may perform the same type of work as an employee of a business but may still be an independent contractor. This means that whether someone is an employee or an independent contractor will depend on the individual circumstances.
Primacy of contractual terms and the importance of contractual interpretation
Recently, the High Court has confirmed the primacy of contractual terms and the importance of contractual interpretation in two crucial decisions handed down on 9 February 2022. Regarding the distinction between employees and independent contractors. These decisions demonstrate that the High Court continues to affirm the primacy of contractual terms in determining employment. The contractor relationships and classifications.
The decisions highlight the importance for employers in drafting written contracts for both independent contractors and employees.
Recent CFMEU High Court Decision
In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1. The High Court held that a construction worker was an employee of a labor hire company. This decision had considerable effect relating to his dismissal rights.
Personnel Contracting (trading as ‘Construct’), a Perth based labor hire company, engaged workers to supply labor to building clients. Construct provided services to Hanssen Pty Ltd. This is pursuant to a labor hire agreement for the provision of self-employed contractors by Construct at Hanssen sites. Construct’s workers were paid on a daily hire basis, for which Construct invoiced Hanssen on a weekly basis.
Mr McCourt was a 22-year-old British backpacker on a working holiday visa. Mr McCourt contacted Construct and attended an interview on 25 July 2016. At his interview, Mr McCourt advised Construct that he was ready to start work immediately and that he owned his own hard hat, steel-capped boots and hi-vis clothing. Mr McCourt was subsequently offered a role and signed an Administrative Services Agreement (ASA) with Construct. The ASA described Mr McCourt as a ‘self-employed contractor’.
On 26 July 2016, Construct contacted Mr McCourt and offered him work at Hanssen’s project site. Mr McCourt was supervised by a Hanssen leading hand and there was no contractual arrangement between Hanssen and Mr McCourt.
Mr McCourt performed work on Hanssen’s projects between 27 July 2016 and 6 November 2016. And between 14 March 2017 and 30 June 2017. On 30 June 2017, Mr McCourt was directed by Construct to stop work on the Hanssen project sites. He did not receive any further work from Construct.
Claiming compensation and penalties under the Fair Work Act 2009
Mr McCourt commenced proceedings in the Federal Court against Construct claiming compensation and penalties under the Fair Work Act 2009 (Cth) (FWA). This in relation to their dismissal, terminating their services. Mr McCourt claimed that he was not an independent contractor. That Construct had failed to pay him entitlements as an employee under the Award. At first instance, the primary Federal Court judge, Justice O’Callaghan, applied a multifactorial approach. (control, operation of own business, integration in Construct’s business, provision of tools and equipment and terms of the contract). To answer the question of whether Mr McCourt was an employee of Construct for the purposes of the FWA.
Justice O’Callaghan held that Mr McCourt was a contractor of Construct and considered the following factors as decisive. The description of Mr McCourt as a ‘self-employed contractor’ requirements set out in the ASA that Mr McCourt not hold himself out as an employee of Construct.
Full Federal Court upheld the Federal Court’s decision
The CFMMEU appealed the decision to the Full Federal Court. The Full Federal Court upheld the Federal Court’s decision. The Full Federal Court also applied a multifactorial approach in determining that Mr McCourt was a contractor of Construct and, therefore, not an employee. However, it was noted that the Full Federal Court’s decision was made on the basis that it was bound by the decision of a Western Australian Industrial Appeal Court decision.
This was involving an identical dispute between Construct and self-employed contractors 16 years ago, which otherwise would have led to the Full Federal Court finding that Mr McCourt was an employee.
High Court Rules Mr McCourt is an Employee
The CFMMEU appealed the Full Federal Court’s decision to the High Court. The High Court unanimously overturned the Full Federal Court’s decision and held that Mr McCourt was an employee of Construct.
The High Court found that the multifactorial test approach taken by both the Federal Court and the Full Federal Court was problematic as it is impressionistic and can lead to inconsistency and considerable uncertainty.
In reviewing relevant authorities, the High Court considered that the multifactorial test approach evolved since Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 and Hollis v Vabu Pty Ltd (2001) 207 CLR 21 had led to a departure from key authorities in determining the characterisation of a relationship by reference to the rights and obligations committed to writing by the parties in a contract.
The High Court stipulated that, in neither Stevens nor Hollis did this Court suggest that, where one person has done work for another pursuant to a comprehensive written contract, the court must perform a multifactorial balancing exercise whereby the history of all the dealings between the parties is to be exhaustively reviewed, even though no party disputes the validity of the contract. Critically, both Stevens and Hollis dealt with disputes where there was either no written contract, or the contract was partly written and partly oral.
The totality of the relationship between the parties
This position taken by the High Court was advanced from its decision in WorkPac Pty Ltd v Rossato  HCA 23. The High Court suggested that considering ‘the totality of the relationship between the parties’. This was not misplaced, but that it must be concerned with the rights and duties established by the written contract and the contractual obligations of the parties.
However, importantly, that is not to say that the ‘label’ the parties chose to describe the relationship with is determinative of the characterization – that is for the court to determine as a matter of law.
In this particular case, the High Court found the following:
- Mr McCourt was not carrying on a business on his own account. Construct retained a right of control over Mr McCourt, which was fundamental to Construct’s business as a labor-hire agency.
- Construct was entitled to determine for whom Mr McCourt would work and, once assigned. Mr McCourt was required to cooperate in the supply of his labor to the client.
- Mr McCourt worked subject to the control of Construct under the ASA and had no right to exercise any control over what work he was to perform or how it was carried out.
- The description of Mr McCourt as a ‘self-employed contractor’ was not determinative. Did not change the character of the relationship created by the express terms of the ASA.
Accordingly, the High Court allowed the appeal and held that it was impossible to conclude that Mr McCourt was not dependent upon, and subservient to, Construct’s business and that he clearly performed a contract of service as Construct’s employee.
Recent High Court Decision in ZG Operation v Jamsek
In ZG Operations Australia Pty Ltd v Jamsek  HCA 2, the High Court held that two truck drivers were independent contractors despite over 40 years of exclusive service to the principal, ZG Operations.
Mr Jamsek and Mr Whitby (the drivers) were employed by former entities of ZG Operations Australia Pty Ltd as truck drivers. The drivers were initially engaged as employees and drove trucks provided by ZG Operations. In 1985 or 1986, ZG Operations insisted that it could no longer employ the drivers. That their services would only be used if they purchased their trucks and entered into contracts to carry goods for ZG Operations.
The drivers subsequently set up partnerships with their respective wives, purchased the trucks and signed written agreements with ZG Operations. After this date, the drivers made deliveries at the request of ZG Operations and invoiced ZG Operations once the delivery was completed. These agreements remained on foot until 20 January 2017, when the contracts were terminated by ZG Operations.
Commenced proceedings for statutory entitlements
The drivers subsequently commenced proceedings for statutory entitlements they claimed to be owed as employees under the FWA, the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW). At first instance, the primary Federal Court judge, Justice Thawley, concluded that drivers were independent contractors.
The Full Federal Court overturned the primary judge’s decision and held that the drivers were employees of ZG Operations. The Full Federal Court considered the ‘totality of the relationship’ between the parties. They paid particular attention to the way the parties had conducted themselves since 1986. Further, the Court held that the disparity in bargaining power between the parties influenced the ability for it to be considered a contract for services. That is provided by the respective partnerships and accordingly each should be considered an employment relationship.
High Court overturns Federal Court ruling – drivers were not employees
The High Court allowed the appeal and heard it together with CFMMEU v Personnel Contracting. As in CFMMEU v Personnel Contracting. The High Court considered the character of the relationship between the parties by reference to the rights and duties created by the written contract, which comprehensively regulated the relationship. High Court held that ZG Operations having superior bargaining power at the time of creation of the contract. And did not alter the meaning or effect of the contract.
In turn High Court held that, as the terms of the relationship had been committed to a written contract and the efficacy of that contract had not been challenged as a sham. The characterization of that relationship must be with reference to the rights and obligations of the parties under the contract. High Court held that the Full Federal Court erred in considering the totality of the relationship and substance of the bargaining power between the parties. For the reasons stated in CFMEU v Personnel Contracting and in Workpac Pty Ltd v Rossato.
After 1986, the contract between ZG Operations and the drivers’ partnerships provided that the drivers’ partnerships would own and operate the trucks, which would transport ZG Operations’ goods. The relationship between the parties only continued on ZG Operations’ insistence of a contract for carriage of goods and its refusal to continue to employ the drivers.
High Court determined that the reality of the situation
In examining the written contract, the High Court determined that the reality of the situation was that the drivers’ partnerships. Not the drivers individually, owned and operated the trucks and that the drivers were conducting businesses of their own as partners. The partnerships contracted with ZG Operations for the delivery services provided by the operation of the trucks. The partnerships earned income, incurred expenses associated with the ownership and operation of the trucks. Further they took advantage of tax benefits of the structure.
Accordingly, the High Court unanimously overturned the Federal Court decision. Held that the drivers, through their partnerships, carried on the business of providing delivery services for ZG Operations under a contract for services and were not employees.
Conclusion: Employee and Contractor Issues High Court Clarifies
I hope you enjoyed, the employee and contractor issues article, its certainly a complicated issue. It was important the matter gets addressed. Your rights are severely effected by what your classification is. Consideration of: Who provides the tools, uniforms, hours of work, rework and warranty. The list can be quite extensive, every situation is different. There is a world of difference between the different payouts if your dismissed or terminated. Any questions, queries give us a call. all Fairwork Australia matters. Including unfair dismissals, probation concerns, general protection claims, redundancy disputes and constructive dismissal complaints. We work on a national basis, including Victoria, NSW, QLD, WA
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One of the nations leading workplace advisors, representatives and commentators. Gary has represented some 12,000 clients over some 20 plus years, published some 300 plus articles. He is passionate about employees rights and the test of fairness in the workplace. Have a problem, concern, wants to contribute to the debate or research, call him directly.